Day: April 24, 2019

Facebook on Wednesday blew away Wall Street profit estimates in the first quarter as it kept a lid on the costs of making its social networks safer, and set aside $3 billion to cover a settlement with U.S. regulators, calming investors who had worried about the outcome of a months-long federal probe.

Shares of the world’s biggest online social network jumped more than 10% after hours.

The U.S. Federal Trade Commission has been investigating revelations that Facebook inappropriately shared information belonging to 87 million of its users with the now-defunct British political consulting firm Cambridge Analytica.

The probe has focused on whether the sharing of data and other disputes violated a 2011 agreement with the FTC to safeguard user privacy. Facebook set aside $3 billion to cover anticipated costs associated with the settlement, but said the charges could reach as high as $5 billion.

Civil penalty

If the settlement is in that range, it would be the largest civil penalty paid to the agency, said David Vladeck, a former FTC official now at Georgetown Law School.

“Everyone expected there would be a substantial civil penalty in this case,” said Vladeck. “There’s no question that Facebook is going to have to settle this matter. Investors want this behind them.”

The accrual cut the company’s net income in the first quarter to $2.43 billion, or $0.85 per share.

Excluding the $3 billion it set aside, Facebook would have earned $1.89 a share, up from $1.69 the year prior and easily beating analysts’ average estimate of $1.63 per share, according to IBES data from Refinitiv.

Total first-quarter revenue rose 26% to $14.9 billion from $12.0 billion last year, compared to analysts’ average estimate of $15.0 billion.

Shares rise 

Shares of Facebook rose 10% to $200.50 in after-hours trade, demonstrating the company’s resilience despite a series of scandals over improperly shared user data and propaganda that made it the target of political scrutiny across the globe.

The company’s shares lost a third of their value last year, after executives first warned about costs associated with its drive to improve safety and slowing growth in revenue and operating margin.

Total expenses in the first quarter were $11.8 billion, up 80% compared with a year ago. The operating margin fell to 22% from 46% a year ago, but would have been 42%  without the one-time expense.

“This is a strong report suggesting that advertisers still see value in Facebook’s platform, as they did before the controversies and scandals erupted,” said Haris Anwar, senior analyst at financial markets platform Investing.com.

Expenses will grow

Executives have forecast that expenses will grow 40% to 50%  in 2019, but say they expect the downward trend to taper off after this year as revenue from new ways of pushing ads and facilitating transactions offset the security spending.

Monthly and daily users of the main Facebook app compared to last quarter were both up 8% to 2.38 billion and 1.56 billion, respectively.

Estimates were for 2.4 billion monthly users and 1.6 billion daily users, according to Refinitiv averages.

 
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Stephen Moore, the economic commentator that U.S. President Donald Trump has said he will nominate to the Federal Reserve Board, is drawing new fire from top Democrats for his comments denigrating, among other targets, women and the Midwest.

But Republicans, whose 53 to 47 majority in the U.S. Senate gives them the final say on whether Moore’s pending nomination is confirmed, have not weighed in since news surfaced this week documenting Moore’s long history of sexist remarks, some of which he says were made jokingly.

As a Fed governor, Moore would have a say on setting interest rates for the world’s biggest economy. Some economists and Democratic lawmakers have questioned his competence, citing his support for tying policy decisions to commodity prices and his fluctuating views on rates. This week though, it is his comments about gender and geography that are drawing criticism.

“What are the implications of a society in which women earn more than men? We don’t really know, but it could be disruptive to family stability,” Moore wrote in one column in 2014.

In 2000, he opined that “women tennis pros don’t really want equal pay for equal work. They want equal pay for inferior work.” The New York Times among others has documented many other instances where he expressed similar viewpoints.

It’s just added evidence that Moore is unfit for the Fed job, vice chair of the joint economic committee Carolyn Maloney told Reuters.

“Those include his reckless tendency to politicize the Fed as well as his bizarre and sexist comments about women in sports that came to light this week,” she said.

Republicans, she said, “should also take note that Moore has said capitalism is more important than democracy. That’s a dangerous comment that further confirms my belief that Moore shouldn’t be allowed on the Fed Board.”

Maloney earlier this month sent a letter urging Republican Senator Mike Crapo and Democratic Senator Sherrod Brown to oppose Moore’s nomination. Crapo and Brown are the chair and vice chair, respectively, of the Senate banking committee, which would be Moore’s first stop in any confirmation hearings.

Senators Elizabeth Warren and Charles Schumer, both Democrats, have also publicly criticized Moore as well as businessman Herman Cain, who withdrew his name from consideration for the Fed this week amid mounting objections.

Cain said he stopped the process because he realized the job would mean a pay cut and would prevent him from pursuing his current business and speaking gigs.

The Senate banking panel’s 13 Republican members, contacted by Reuters about their views on Moore’s suitability for the Fed role after his derisive commentary about women came to light, all either did not respond or declined to comment.

But Brown on Wednesday blasted Moore for comments he made in 2014 calling cities in the Midwest, including Cincinnati, the “armpits of America.” Brown demanded an apology.

“It would be your job to carefully consider monetary and regulatory policies that support communities throughout the country” even those you apparently consider beneath you,” Brown wrote in a letter to Moore. “Based on your bias against communities across the heartland of our country, it’s clear that you lack the judgment to make important decisions in their best interest.”

 
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Boeing reported lower first-quarter profits Wednesday as the global grounding of its 737 MAX plane following two crashes hit results.

The US aerospace giant reported $2.1 billion in profits, down 13.2 percent from same period a year ago.

Revenues dipped 2.0 percent to $22.9 billion, due to a tumble in commercial plane revenues following the suspension of 737 MAX deliveries.

Boeing also withdrew its full-year profit forecast, citing uncertainty surrounding the 737 MAX.

The aerospace giant has been under scrutiny since the March 10 crash of an Ethiopian Airlines jet, which came on the heels of an October Lion Air crash. Together the crashes claimed 346 lives.

Boeing said it is “making steady progress” on a fix to the jet’s anti-stall system that is thought to be a factor in both accidents.

The company has conducted more than 135 test flights of the fix and is working with global regulators and airlines, it said in a news release.

“Across the company, we are focused on safety, returning the 737 MAX to service, and earning and re-earning the trust and confidence of customers, regulators and the flying public,” said Chief Executive Dennis Muilenburg in a press release.

The company announced earlier this month it was cutting monthly production of the 737 by about 20 percent.

Boeing shares were up 1.3 percent at $379.07 in pre-market trading.
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Vietnam this week just celebrated the fact it has survived nearly a millennium of independence from China, which previously ruled the smaller neighbor for nearly as long. Much is made of the ancient rivalry between the two sides — but there is far less attention, especially on the international stage, on areas where they both get along fairly well.

The textile and garment sector is as good an example as any of this amicable cooperation, given that China is the world’s biggest exporter in the industry, and Vietnam is the second biggest. Analysts often describe Hanoi as taking a path similar to Beijing’s, both having communist leaders who turned toward export-led market capitalism in recent decades, and in terms of selling ever more footwear, clothes and bags to the world, Vietnam is indeed following China’s actions.

“China and Vietnam hold a pivotal position in the global textile market,” Chen Dapeng, president of the China National Garment Association, said at a trade conference in Ho Chi Minh City this month. “The industries of the two countries are highly complementary.”

The industries compete for customers, but they are also complementary in that Chinese factories supply much of the fabric and other inputs needed in the business, while Vietnamese factory hands are increasingly supplying the labor as costs rise in China.

“We believe many in Asia can cooperate,” said Le Tien Truong, CEO of the Vietnam National Textile and Garment Group. “We are not just taking Chinese investment, but also reforming Vietnamese suppliers.”

He and others in Vietnam speak of domestic reform because the country does not have as large and complex a network of textile suppliers and processors as in China. That is one reason the smaller country relies on the larger one as its biggest source of imported goods overall. No matter the geopolitical problems at the top, the reality is that textile firms on both sides of the border work together to turn a profit. 

On one hand, amid the trade war between the United States and China, the latter competitor has lost some of its business to Vietnam. On the other hand, it is not just foreign third parties moving factories from China to Vietnam, but also Chinese investors themselves, who deem it beneficial to relocate some of their supply chain to the south.

This month a large contingent of Chinese textile companies went scouting for Vietnamese partners in the industrial parks just outside Ho Chi Minh City.

This global shift in interest toward Vietnam has helped it to catch up to China, which is still the export leader in shoes and garments.

“We congratulate Vietnam for that big effort,” said Sun Rui Zhe, president of the China National Textile and Apparel Council.

He noted his country looks to support that effort as part of its Belt and Road Initiative, which gives loans and grants to dozens of countries, mostly for infrastructure, but also private industry, including textiles. Beijing has already financed dozens of projects in Vietnam, from coal power to ship yards to fertilizer plants.

“China has done our best to improve our relations all over the world,” Sun said.
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China is getting ready to welcome representatives from 150 nations, including senior leaders of 40 countries, to discuss its international infrastructure program at the second Belt and Road Forum, beginning Thursday and running through Saturday in Beijing.

Analysts say it is not merely a conference on infrastructure building, but an attempt by China to display its popularity and power as a political rallying force. This is significant in view of severe criticism by the United States, which has described the Belt and Road Initiative, or BRI, as China’s “vanity project.”

“It is a political show of strength. BRI has assumed the characteristics of a global public good,” said Sourabh Gupta, senior fellow at the Institute for China-America Studies in Washington. “In a sense, conceptually, it is about China slipping itself into American clothing which the U.S. itself has discarded. It is about mainstreaming China as a leader of the global development system.”

China has repeatedly denied it has a political purpose in trying to construct connectivity projects across the world. “The ‘Belt and Road Initiative’ is not a geopolitical tool but a platform for cooperation. We welcome all parties to take part in it,” Chinese State Councilor and Foreign Minister Wang Yi said at a recent press conference.

The forum is expected to see an emphasis on the importance of multilateralism and its criticism of protectionism in business and world affairs. Some observers see this as a veiled attempt by Beijing to build up world opinion against the United States.

Countering US clout

Zhiqun Zhu, chair at the department of international relations at Bucknell University in Pennsylvania, said the meeting will reflect China’s growing clout. “When the U.S. focuses on “America first” under President [Donald] Trump, China is quickly emerging as a leader in the global economy and global governance.”

Political clout comes from success in international affairs, however, and not by merely hosting political theater. Although China has achieved some success in its infrastructure program, it has faced several setbacks, with Sierra Leone, Malaysia and Myanmar canceling or scaling back previously negotiated construction deals.

“A lot of the forum will be an attempt at restoring the Belt and Road brand, which has been tarnished over the past two years,” said Jonathan Hillman, director of the Reconnecting Asia project at the Center for Strategic and International Studies in Washington.

The U.S. has said it will not send a high-level delegation to the forum. It expressed disappointment at Italy’s recent decision to join the BRI. “Secretary Pompeo has very publicly gone to every corner of the world and denigrated China’s overseas development lending and projects-based model,” Gupta said, referring to U.S. Secretary of State Mike Pompeo.

Foreign Minister Wang Yi said no country has a right to stop others from attending the forum. “All countries have the freedom to participate, but they don’t have the right to prevent other countries from taking part,” he said.

Zhiqun Zhu said instead of running a smear campaign, the U.S. should work with China to ensure that investments in BRI projects are more rule-based and transparent.

World opinion

Germany, France, Japan and Australia are expected to send mid-level officials. They have raised serious objections, saying they would like to see BRI become more transparent, environmentally sustainable and offer equal business opportunities to all participating countries.

“At the end of the day, Europe genuinely wants China to grow into the role of a ‘responsible stakeholder;’ but, responsible stakeholder-ship means that China needs to up its game and conform to prevailing international standards in its practices – be it trade, investment or development,” Gupta said.

India, China’s neighbor, is expected to stay away from the forum. It has said the BRI program violates the country’s sovereignty because some of its projects are located in Pakistan-controlled areas that India regards as its own. India was the only major country to stay away from the first meeting of the forum in 2017.

“India’s stand has increased international attention on some of the troubling aspects of the BRI plan,” said Ananth Krishnan, visiting fellow at Brookings India.

“India was the only country to publicly flag issues such as opacity and debt when the first Belt and Road Forum was held in 2017.”

Gupta at the Institute of China-America Studies thinks many of the objections raised against BRI will be sorted out in negotiations between China and different countries.

“A Chinese menu is on offer but it is not pre-set and it is not being force-fed to host countries,” he said. “It is for host countries, though, to impose themselves and set the minimum standards of project integrity – although China would do well to set a reasonably high bar in this regard of its own volition.”
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